Order Protection Rule

A rule requiring investors to receive a price for a security that is at least equivalent to the price for the same security on another exchange. That is, the order protection rule forbids an order from being executed at a price below the price on another exchange. There are various exceptions; notably limit orders and IOC orders do not necessarily abide by the order protection rule. The rule is a provision of Regulation NMS and is designed to help integrate American exchanges and to protect investors from bad deals. It is also called Rule 611.

Order protection rule.

The order protection rule, part of Regulation NMS -- for National Market System -- adopted by the Securities and Exchange Commission (SEC) in 2005, requires that every stock trading center establish and enforce a policy that ensures no transaction will be traded-through, or executed at a price that's lower than a protected quotation in that security displayed by another trading center.

A protected quotation is one that's immediately and automatically accessible. The order protection rule, also called Rule 611, does allow certain exceptions, which apply to limit orders, immediate-or-cancel (IOC) orders, and intermarket sweep orders (ISOs).

Specifically, the SEC will assess whether an intentional delay is "so short as to not frustrate the purposes of the Order Protection Rule by impairing fair and efficient access to an exchange's quotations.

shtml) national securities exchange and revise the interpretation of the so-called order protection rule under its Regulation NMS could create a market structure benefiting some participants and costing other participants more than $400 million a year, according to one analysis of the potential effects of the SEC's two related moves.

A key differentiator between the newly approved IEX and other national securities exchanges such as the New York Stock Exchange, Nasdaq Stock Market and Bats BZX Exchange was blessed by the SEC in its revised interpretation of the order protection rule.

Specifically, we use data from US equity markets in 2008 to investigate the US Securities and Exchange Commission's (SEC) "Flickering Quote Exception" to the Regulation National Market System (Reg NMS) Order Protection Rule that defines the benchmark price for evaluation of trade throughs and provides a one second look back exception.

Section I provides an overview of the SEC Reg NMS Order Protection Rule and the Benchmark Quote Exception and describes the quote-arbitrage trading strategy.

The Commissions interpretation applies to the Order Protection Rule under Regulation NMS, which protects the best priced automated quotations of certain trading centers by generally obligating other trading centers to honor those protected quotations and not execute trades at inferior prices.

The Commissions updated interpretation determined that a small delay will not prevent investors from accessing stock prices in a fair and efficient manner consistent with the goals of the Order Protection Rule.

The ISE Stock Exchange introduced its displayed market on December 8, 2006, and has aggressively added securities in advance of the March 5, 2007 implementation date for the Reg NMS Order Protection Rule.

NEW YORK -- TABB Group in a new report released today, "The Reg NMS Order Protection Rule: Preparing for the Impact," says implementing the Securities and Exchange Commission's Regulation NMS Order Protection Rule 611 will have an unprecedented and drastic impact on the equities markets.

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